UK Capital Gains Tax for US Citizens: Rates, Allowances and the Home Sale Trap

UK capital gains tax applies to US citizens who are UK resident on their worldwide gains, at 18% or 24% for the 2026/27 tax year after a £3,000 allowance. The same gain must also be reported to the IRS in dollars. UK tax normally credits against US tax, but the two countries calculate the gain differently, and a home sale is where that hurts most.

Most guides stop at the rates. For an American in the UK the rates are the easy part. The difficulty is that one sale produces two different gains: one worked out by HMRC in pounds and one worked out by the IRS in dollars. This guide sets out both calculations, with the official source beside each figure, and then works through the home sale in detail.

Do US citizens pay UK capital gains tax?

Yes. A US citizen who is resident in the UK is within UK Capital Gains Tax on gains from assets anywhere in the world, in the same way as any other UK resident. Citizenship does not change the UK position. What it changes is that the US continues to tax the same person on the same gains, because the US taxes its citizens wherever they live.

Three situations sit outside the general rule:

• New arrivals. Someone in their first four tax years of UK residence after at least ten years abroad may be able to claim relief on foreign gains under the foreign income and gains regime. UK assets are not covered.
• Non-residents with UK property. GOV.UK says a person who is not UK resident must report all sales of UK property or land, even if there is no tax to pay.
• Tax-wrapped accounts. Gains inside an ISA are exempt in the UK but not in the US, which is one reason ISAs cause problems for US citizens.

UK capital gains tax rates and allowances for US citizens in 2026/27

GOV.UK's Capital Gains Tax rates page gives two main rates for individuals for the 2026/27 tax year: 18% on gains that fall within the basic rate Income Tax band, and 24% on gains above it. A higher or additional rate taxpayer pays 24% on the whole taxable gain. The same rates apply to residential property and to other assets such as shares.

The tax-free allowance, formally the annual exempt amount, is £3,000 for an individual for the current tax year. Gains up to that amount are not taxed. GOV.UK also gives an 18% rate for gains that qualify for Business Asset Disposal Relief.

The US side works differently. The IRS, in Topic no. 409, taxes long-term gains (assets held for more than one year) at 0%, 15% or 20% depending on taxable income, and short-term gains at ordinary income rates. On top of that sits the 3.8% Net Investment Income Tax, which applies above modified adjusted gross income of $200,000 for a single filer, $250,000 on a joint return and $125,000 for married filing separately.

	UK (HMRC), 2026/27	US (IRS)
Main rates	18% within the basic rate band, 24% above it	0%, 15% or 20% for long-term gains; ordinary rates for short-term gains
Holding period	No distinction between short and long holdings	More than one year for long-term treatment
Annual allowance	£3,000 annual exempt amount	No equivalent allowance for gains
Additional charge	None	3.8% Net Investment Income Tax above the income thresholds
Currency of the calculation	Pounds, converted at each transaction date	Dollars, converted at each transaction date
Main home	Private Residence Relief, with no monetary cap	Exclusion of up to $250,000, or $500,000 on a joint return
Tax year	6 April to 5 April	Calendar year

Because the top UK rate of 24% is higher than the top US long-term rate of 20%, a UK-resident American selling UK shares held for more than a year will often find the UK tax covers the US income tax on the gain. Two things break that pattern: the Net Investment Income Tax, and any difference between the gain HMRC sees and the gain the IRS sees.

How do HMRC and the IRS tax the same gain?

Each country works out its own gain in its own currency, and the US then gives credit for UK tax on the same gain. HMRC's Capital Gains Manual at CG78310 says an amount of foreign currency must be converted into its sterling value at the time the amount is incurred or received. The IRS says amounts on a US return must be expressed in US dollars, using the exchange rate prevailing when you receive, pay or accrue the item.

So the purchase price is converted at the purchase date rate and the sale price at the sale date rate, separately, on each return. Exchange rate movement over the holding period becomes part of the gain in one country and not the other.

Illustrative example: Daniel, a US citizen resident in Bristol, buys UK shares for £100,000 and sells them some years later for exactly £100,000. HMRC sees no gain. Using invented exchange rates for illustration, suppose £1 bought $1.20 when he purchased and $1.40 when he sold. The IRS sees a purchase for $120,000 and a sale for $140,000: a $20,000 gain, with no UK tax to credit against it. Had the rates been the other way round, he would have a $20,000 US loss and still no UK gain.

The reverse happens with US assets. A US brokerage account that has gone nowhere in dollars can show a sterling gain to HMRC if the dollar has strengthened. Anyone who holds assets in one currency and files in two needs the cost of every holding recorded in both currencies at the date of purchase.

Claiming the credit

Where both countries tax the same gain, the UK tax is normally claimed on the US return as a foreign tax credit on Form 1116. For gains on US assets, the treaty mechanics are more involved, and our guide to double taxation relief between the US and UK explains which country gives way. Timing also matters: the UK tax on a gain is often paid in a later US year than the one in which the gain is reported, which our article on the UK tax year vs US tax year mismatch covers in detail.

One charge sits outside the credit entirely. The IRS's questions and answers on the Net Investment Income Tax state that foreign income tax credits may not be used to reduce it. A US citizen above the income thresholds can therefore pay 24% to HMRC and still owe 3.8% to the IRS on the same gain.

What is the home sale trap for US citizens in the UK?

The home sale trap is that a UK main home can be sold entirely free of UK tax and still produce a US tax bill, with no UK tax available to credit against it. It has three separate parts: the US cap, the currency, and the mortgage.

Part one: the UK relief has no cap, the US exclusion does

GOV.UK says you do not pay Capital Gains Tax when you sell your home if you have one home and have lived in it as your main home for all the time you have owned it, you have not let part of it out or used part exclusively for business, the grounds are less than 5,000 square metres, and you did not buy it just to make a gain. There is no limit on the amount of gain that Private Residence Relief can cover.

The US exclusion is capped. IRS Topic no. 701 allows up to $250,000 of gain to be excluded, or $500,000 on a joint return, where you owned the home and used it as your residence for at least 24 months of the 5 years before the sale. The exclusion applies to a main home anywhere in the world. With UK house prices, particularly in London and the South East, a long-held family home can easily carry a gain above those figures.

The $500,000 figure needs a joint return. A US citizen married to someone who is not a US person does not file jointly by default, so many mixed-nationality couples are working with $250,000.

Part two: the gain is measured in dollars

The US gain is the dollar sale price less the dollar purchase price, each at its own exchange rate. A weaker pound at the date of sale reduces the US gain; a stronger pound increases it. The sterling figures on the completion statement are only the starting point.

Part three: the mortgage is a separate transaction

This is the part almost nobody expects. In Revenue Ruling 90-79 the IRS held that a US citizen's foreign currency mortgage is a separate transaction from the purchase and sale of the home. If the pound has fallen since the loan was taken out, the borrower repays it with fewer dollars than were originally borrowed, and that difference is a gain. It cannot be netted against a loss on the house, and a loss on the mortgage in the opposite direction is a personal loss.

Illustrative example, using invented exchange rates: Emma, a single US citizen, buys a London flat for £400,000 with a £300,000 mortgage when £1 buys $1.50. She sells years later for £900,000 when £1 buys $1.30 and repays the £300,000 still owing on an interest-only loan. In the UK, Private Residence Relief covers the whole £500,000 gain. For the IRS, the purchase price is $600,000 and the sale price $1,170,000, a gain of $570,000. After the $250,000 exclusion, $320,000 is taxable. Separately, she borrowed the equivalent of $450,000 and repaid the equivalent of $390,000: a $60,000 currency gain on the mortgage. The UK charges no tax on either amount, so there is nothing to credit.

The example ignores purchase costs, selling costs and improvements, all of which reduce the US gain and should be documented. The IRS's Net Investment Income Tax guidance confirms that gain excluded on a main home is not subject to the 3.8% charge, but the gain above the exclusion can be.

Where the two reliefs disagree on time away

The two countries also treat absences differently. GOV.UK's guidance on living away from your home says you always get relief for the last 9 months of ownership, and that certain absences still count, including any period working outside the UK and up to 3 years for any reason, generally provided you lived in the home before and afterwards. The US test simply asks for 24 months of ownership and 24 months of use in the 5 years before the sale, and IRS Publication 523 (2025) restricts the exclusion for periods of non-qualified use and for depreciation allowed after 6 May 1997 on a home that was let.

An American who moves back to the US and lets the UK home for four years before selling could keep part of the UK relief and lose the US exclusion altogether. The dates matter more than the amounts, and they should be checked before the property is marketed, not after completion. Letting a former home has its own two-country rules, covered in our guide to landlord tax on UK rental income for US citizens.

Reporting deadlines on each side

1. UK residential property. GOV.UK requires any Capital Gains Tax due to be reported and paid within 60 days of completion. A sale fully covered by Private Residence Relief has no tax to report under this rule.
2. Other UK gains. Reported on the Self Assessment return for the tax year of disposal, or through HMRC's real time Capital Gains Tax service by 31 December in the tax year after the sale.
3. US return. Disposals go on Form 8949 and Schedule D of the Form 1040 for the calendar year of sale. IRS Topic no. 701 says a home sale must be reported if you cannot exclude all of the gain, or if you received a Form 1099-S.
4. Foreign tax credit. UK tax paid on the gain is claimed on Form 1116 in the year it is paid or accrued, depending on the method you use.

What Americans in the UK get wrong about capital gains

• Assuming "tax-free in the UK" means tax-free. Private Residence Relief, ISAs and the £3,000 allowance are UK reliefs only. The IRS recognises none of them, although it has its own home sale exclusion.
• Keeping cost records in one currency. Without the exchange rate on the date of purchase, the gain for the other country cannot be computed properly.
• Ignoring the mortgage. Remortgaging, overpaying or redeeming a sterling loan can each crystallise a US currency gain where the pound has weakened since the borrowing.
• Holding UK funds in a general account. Gains on non-US funds fall under the US passive foreign investment company rules, and the UK has its own trap for offshore funds, as explained in our article on HMRC reporting fund rules for a US citizen.
• Selling first and asking afterwards. The useful decisions (the date of sale, which spouse owns the asset, whether to file jointly, how the mortgage is repaid) all have to be made before exchange of contracts.

A pre-sale checklist

1. Establish the purchase cost, improvement costs and mortgage history in both pounds and dollars.
2. Work out the UK gain and the US gain separately before agreeing a sale.
3. Test Private Residence Relief and the US 24-month ownership and use tests against your actual dates of occupation.
4. Check whether the Net Investment Income Tax thresholds will be crossed in the year of sale.
5. Confirm which UK tax will be creditable in the US, and in which US tax year.
6. Diary the 60-day UK deadline if any UK tax is due on a residential property.

US/UK Cross Border Tax is a firm of US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco. We run the UK and US calculations side by side before a sale, which is the point at which the outcome can still be changed. Our cross-border property tax service covers home sales, rental property and UK capital gains tax for US citizens, alongside our UK Self Assessment service for the return itself. If you are an American living in the UK and are thinking of selling, contact us before you instruct an estate agent.